On Monday, the US Dollar Index (DXY) experienced significant volatility, briefly surging above the 100.00 mark to a session high near 100.15 before sharply reversing and settling around 99.12, down approximately 0.5% on the day. This intraday swing, covering more than 125 points from peak to trough, marked one of the widest ranges in weeks, with the reversal triggered by US President Donald Trump's announcement of 'productive conversations' with Iran and a five-day postponement of planned strikes on Iranian power plants and energy infrastructure [1][2]. The DXY's decline was mirrored by a rebound in the EUR/USD pair, which rose 0.37% to 1.1613 after bouncing off daily lows near 1.1484 [2].
Trump's announcement, made on his social network, suggested a de-escalation in the four-week-old conflict, leading to a sharp drop in crude oil prices. West Texas Intermediate (WTI) fell more than 9% below $90 per barrel, while Brent crude slid over 13% at the lows [1]. The improvement in risk appetite sent US equity markets rallying and US Treasury yields falling, further pressuring the US Dollar [2]. However, Tehran denied any talks were taking place, and the Strait of Hormuz remains closed to most tanker traffic, leaving the outlook for a lasting resolution uncertain [1][2]. Pakistani media reported that Iran's Parliamentary Speaker Ghalibaf discussed the Strait of Hormuz issue with US officials in Islamabad, while CBS noted the Strait is dotted with about a dozen Iranian mines [2].
The Federal Reserve held rates at 3.50% to 3.75% at its March 18 meeting, with Chair Powell noting that inflation progress has not been as fast as hoped. Updated projections see the Personal Consumption Expenditures (PCE) price index at 2.7% for the year, with only one rate cut penciled in for 2026 [1]. San Francisco Fed President Mary Daly highlighted two possible scenarios: a quick easing of geopolitical tensions leading to a temporary inflation jump, or a prolonged conflict causing sustained inflation and weighing on economic activity [2]. Chicago Fed President Austan Goolsbee stated that inflation progress had stalled and remains optimistic that rates may decrease by the end of 2026, while Fed Governor Stephen Miran said it is premature to determine the impact of the energy price shock on inflation [2].
Technical analysis shows the DXY trading at 99.12, with a mildly bearish near-term bias as it remains below the 200-period exponential moving average at 99.33. Initial resistance is at 99.20, and immediate support is at 99.10, with a move below this level opening the way toward 98.90 [1].
CONCLUSION
The US Dollar Index's sharp reversal and the EUR/USD rebound were driven by Trump's Iran truce announcement and the resulting plunge in oil prices. While risk appetite improved and markets rallied, uncertainty persists due to conflicting reports on US-Iran talks and ongoing tensions in the Strait of Hormuz. The Fed remains cautious, with future rate decisions dependent on the resolution of geopolitical risks and their impact on inflation.